Press Release

Asirvad Microfinance Limited

Sep 20, 2023

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

Non-convertible debentures 200.00 CARE AA-; Stable Assigned

Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

The rating assigned to the debt instruments of Asirvad Microfinance Limited (AMFL) factors in the benefits derived from being
part of the Manappuram group, its long track record of operations with Pan-India presence, adequate loan appraisal system along
with good MIS, comfortable capitalisation levels supported by regular equity infusion and fairly-diversified resource profile. The
rating takes note of significant growth in assets under management (AUM) and bounce back in profitability in FY23 (refers to the
period April 01 to March 31) post COVID-19. AUM grew by 43 % from ₹7002 crore as on March 31, 2022 to ₹10,041 crore as on
March 31, 2023. The rating is, however, constrained by moderate asset quality and the inherent socio-political risks in the micro
finance industry.

Rating sensitivities: Factors likely to lead to rating actions

Positive factors

• Increase in the scale of operations while maintaining good asset quality, profitability, and capital adequacy on a sustained
basis.
Negative factors

• Overall gearing of above 6.5x on sustained basis.

• Deterioration in the credit profile of the parent
• Moderation in expected support from the parent, including decline in shareholding below 51%

Analytical approach: Standalone; factoring in the linkages with parent, Manappuram Finance Limited
Outlook: Stable
The stable outlook reflects the likely continuation of stable credit profile with comfortable capitalisation levels and good profitability
parameters.

Detailed description of the key rating drivers:

Key strength
Strong parentage and benefits derived from being part of the Manappuram group
AMFL is a subsidiary of Manappuram Finance Limited (MFL, rated ‘CARE AA; Stable/ CARE A1+’), the flagship company of the
Manappuram group. AMFL, being a subsidiary of MFL, derives significant benefits in the form of managerial, financial and
operational support. This aids AMFL in expanding the branch network to new geographies in which MFL has presence, enhancing
the IT infrastructure and high level of financial flexibility on account of being a subsidiary of MFL. AMFL accounts for 28% of AUM
mix of MFL as on March 31, 2023 on consolidated basis. Supported by the group’s strong resource-raising ability, the company
mobilizes funds from various avenues by widening the lenders’ base and attract new investors which enables it to secure funds at
competitive rate. V. P. Nandakumar (MD of MFL) is the Chairman of AMFL who is actively involved in the policy decisions. CARE
Ratings expects that the company will continue to benefit from being part of the Manappuram Group

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Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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Long Track record of operations with Pan-India presence

AMFL has an established track record and has been carrying out microfinance lending activities since January 2008. During FY15,
MFL acquired AMFL through a combination of acquisition of shares from the existing investors and fresh equity infusion and AMFL
became a subsidiary of MFL. B N Raveendra Babu is the current managing director of AMFL. The board of AMFL comprises 12
directors including eight independent directors with extensive experience in financial services, rural banking and operations. The
day-to-day operations are looked after by a team of experienced professionals. AMFL has presence in 25 states/ UTs as on March
31, 2023. Tamil Nadu continues to be the top state, with 14% of the AUM as on March 31, 2023 and top three states accounted
for 38% of AUM as on March 31, 2023.
Significant growth in AUM during FY23
AUM has grown at a rate of 43% in FY23 from ₹7002 crore as on March 31, 2022 to ₹10,041 crore as on March 31, 2023. AUM
stood at ₹10,140 crore as on June 30, 2023. The growth in AUM has majorly been achieved by increasing the branch presence
and number of employees per branch. The presence increased from 1,203 branches in 361 districts of 25 states/ union territories
as on March 31, 2022, to 1684 branches in 391 districts of 25 states/ union territories. It is worthwhile to note that average ticket
size of loans stood at around ₹31,000 as on March 31, 2023 despite higher growth in AUM.
Adequate loan appraisal, risk monitoring and collection systems
AMFL operates under the JLG lending model in which the group undergoes training programs Compulsory Group Training (CGT)
and Group recognition Test (GRT) before getting qualified for loan. The Credit Bureau Checks are done at the field level to assess
the eligibility of the borrowers for loan approval. Also the income assessment is done by the Field development officer (FDO) by
discussing with the customer and looking at certain surrogates based on standard of living. The loan approval process is
decentralized at the branch level where branch manager approves the loan amount. 100% disbursements are done online to the
borrower’s account. Every borrower is provided with the repayment schedule indicating the due dates and the loan card for the
loan account. The portfolio is monitored on an on-going basis by post disbursement verification of assets created out of loan
amount. AMFL follows 4-week (28 days) collection model. The collections happen in the centre meetings wherein the instalments
are collected by Filed Development officer (FDO).AMFL has adequate structure to monitor the operations at different levels. It has
defined credit appraisal, collection, and monitoring systems. The company has an internal audit team who conducts operational
audit every month at all the branches. The audit team also visits center meetings and do random checks to ensure compliance of
the process. MIS system generate all the requisite reports.
Comfortable capitalization levels with regular infusion of equity
AMFL has been getting support from its promoters through regular infusion of equity. AMFL had raised equity of ₹967 crore from
MFL since the acquisition of AMFL by MFL. AMFL had networth of ₹1,472 crore as on March 31, 2023 as against ₹980 crore as on
March 31, 2022. The company had raised equity of ₹250 crore in FY23 through rights issue. CAR and Tier I CAR stood at 19.65%
and 16.23% as on March 31, 2023, as compared with 20.81% and 16.40% as on March 31, 2022. Overall gearing as on March
31, 2023 stood at 5.79x as compared to 5.75x as on March 31, 2022. CARE Ratings expects MFL to support AMFL with equity
capital as and when required, both to support business growth and at times of stress. As on June 30, 2023, CAR and Tier I CAR
improved to 22.64% and 18.22%, respectively with capital raise of another ₹150 crore during Q1FY24.
Fairly diversified resource profile
The share of borrowings through term loans from banks, NBFCs and financial institutions (FIs) stood at 77% as on March 31,
2023 as against 70% as on March 31, 2022. The share of the NCD & sub debt stood at 18% as on March 31, 2023 as against
30% as on March 31, 2022. The share of PTC stood at 5% as on March 31, 2023. AMFL has also actively engaged in direct
assignment (DA) transactions and has raised ₹ 4,715 crore during FY23 (PY: ₹4,153 crore) mainly from public-sector undertaking
(PSU) banks. As on March 31, 2023, the DA outstanding stood at ₹1,063 crore, as against ₹1,151 crore as on March 31, 2022.

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Profitability bounced back post COVID-19 in FY23

AMFL reported PAT of ₹17 crore and ₹15 crore during FY21 and FY22 respectively due to higher credit cost on account of impact
of COVID-19. However, the profitability bounced back in FY23. During FY23, AMFL reported a profit-after-tax (PAT) of ₹218 crore
on a total income of ₹1,759 crore (PPOP: ₹583 crore), as against a PAT of ₹15 crore on a total income of ₹1412 crore (PPOP:
₹431 crore) during FY22. Net interest margin (NIM) improved to 10.63% in FY23 from 9.56% in FY22. With increase in the number
of branches and increase in the number of employees per branch, the operating expenditure (opex) remained higher for last two
years. Opex to average total assets stood at 6.27% in FY23 as against 6.22% in FY22. Credit cost decreased from 6.24% during
FY22 to 3.12% during FY23 with higher provisions made earlier. Owing to the same, the return on total assets (ROTA) improved
to 2.50% during FY23 from 0.23% during FY22. During Q1FY24, the company reported a PAT of ₹111 crore on a total income of
₹651 crore. ROTA stood at 4.34% during Q1FY24. CARE Ratings expects the profitability to improve in the near term with the
expectation of credit cost remaining relatively lower.
Key weaknesses
Moderate asset quality
Asset quality was impacted in the last three years ended March 31, 2023 due to impact of COVID-19. The impact on asset quality
was more visible through the credit costs as there were higher write-offs in these years. Gross NPA (GNPA) slightly increased
during FY23 from 1.67% as on March 31, 2022, to 2.69% as on March 31, 2023. Notably, the company had written-off ₹114 crore
and sold NPAs of around ₹322 crore to ARC during FY23. Net NPA (NNPA) increased from 0.30% as on March 31, 2022, to 1.09%
as on March 31, 2023. Provision coverage ratio decreased from 82.19% as on March 31, 2022 to 60.33% as on March 31, 2023
with migration towards LGD-based provisions. The standard restructured portfolio outstanding stood at 0.23% of gross advances
as on March 31, 2023 as against 11.47% as on March 31, 2022. GNPA and NNPA stood at 2.90% and 1.29% as on June 30, 2023.
CARE Ratings expects the asset quality to improve in the near term, considering reduction in the restructured book and
improvement in the economic activity post COVID-19.
Inherent socio-political risks associated with microfinance
The microfinance sector continues to be impacted by the inherent risk involved, viz., socio-political intervention risk and risks
emanating from unsecured lending and marginal profile of borrowers who are vulnerable to economic downturns besides
operational risks related to cash-based transaction.

Liquidity: Adequate
ALM’s profile remains adequate on account of the short-term nature of its loan assets as most of the loans amortized on a monthly
basis with a maximum tenure of up to two years. The funding profile is concentrated towards long-term funds and the trend is
likely to be continued resulting in adequate liquidity profile. There are no negative cumulative mismatches in any of the time
buckets as per ALM dated June 30, 2023. Free cash and cash equivalents of ₹759.23 crore and undrawn sanctions (excluding
unutilised CC limits) of ₹1490 crore as on June 30, 2023, adds comfort.
Environment, social, and governance (ESG): NA
Applicable criteria
Criteria on assigning ‘Outlook’ and ‘Credit Watch’ to Credit Ratings
CARE’s Policy on Default Recognition
Financial Ratios-Financial Sector
CARE's Rating Methodology for Non-Banking Finance Companies (NBFCs)
Rating Methodology: Notching by Factoring Linkages in Ratings
Policy on Withdrawal of Ratings

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About the company and industry

Industry Classification
Macro-Economic Indicator Sector Industry Basic Industry

Financial Services Financial Services Finance Micro Finance Institution

AMFL was incorporated as a Non-Deposit taking Non-Banking Finance Company (“NBFC-ND”) in August 2007 and registered with
the Reserve Bank of India in December 2007. The microfinance operations commenced in January 2008 and the company was
reclassified as NBFC-MFI effective from October 2013. AMFL was promoted by S.V. Raja Vaidyanathan and during February 2015,
Manappuram Finance Limited (MFL, rated ‘CARE AA; Stable/CARE A1+’) acquired 85% stake in AMFL through a combination of
acquisition of shares from the existing investors, the erstwhile promoters and fresh issue of equity shares. As on March 31, 2023,
MFL holds 97.6% stake in AMFL and 1.7% is held by S. V. Raja Vaidyanathan and the rest is held by individuals (0.7%). AMFL
caters primarily to economically backward women and provides microcredit loans under the Joint Liability Group (JLG) model. As
on March 31, 2023, AMFL operates in 23 states and two union territories with 1684 branches and total borrowers of 32,45,218
with AUM of ₹10,041 crore.

Brief Financials (₹ crore) March 31, 2022 (A) March 31, 2023 (A) Q1 FY’24 (UA)

Total operating income 1412 1759 651

PAT 15 218 111
Interest coverage (times) 1.04 1.49 1.74
Total Assets 7075 10363 10,078
Net NPA (%) 0.32 1.15 1.29
ROTA (%) 0.23 2.50 4.34
A: Audited, Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: NA

Any other information: Not Applicable
Rating history for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in
Annexure-3

Complexity level of various instruments rated: Annexure-4

Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Rating
Date of
Maturity Size of the Assigned
Name of the Issuance Coupon
ISIN Date (DD- Issue along with
Instrument (DD-MM- Rate (%)
MM-YYYY) (₹ crore) Rating
YYYY)
Outlook
Debentures-
Non-
CARE AA-;
convertible - - - - 200.00
Stable
debentures
(Proposed)

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Annexure-2: Rating history for the last three years

Current Ratings Rating History

Date(s)
Name of the Date(s) Date(s) Date(s)
Sr. and
Instrument/Bank Amount and and and
No. Rating(s)
Facilities Type Outstanding Rating Rating(s) Rating(s) Rating(s)
assigned
(₹ crore) assigned in assigned in assigned in
in 2023-
2022-2023 2021-2022 2020-2021
2024
1)CARE A+;
Stable
(17-Mar-21)

Fund-based-Long 2)Withdrawn
1 LT - - - - -
term (17-Mar-21)

3)CARE A+;
Stable
(17-Sep-20)
Debentures-Non- 1)CARE A+;
1)Withdrawn
2 convertible LT - - - - Stable
(08-Sep-21)
debentures (17-Sep-20)
Debentures-Non- 1)CARE A+;
1)Withdrawn
3 convertible LT - - - - Stable
(08-Sep-21)
debentures (17-Sep-20)
1)CARE A+;
Stable
Debentures-Non- 1)CARE A+; (17-Sep-20)
1)Withdrawn
4 convertible LT - - - Stable
(07-Sep-22)
debentures (08-Sep-21) 2)CARE A+;
Stable
(03-Aug-20)
Debentures-Non- 1)CARE A+; 1)CARE A+;
1)Withdrawn
5 convertible LT - - - Stable Stable
(07-Sep-22)
debentures (08-Sep-21) (10-Dec-20)
Debentures-Non- CARE
6 convertible LT 200.00 AA-;
debentures Stable

*Long term/Short term.

Annexure-3: Detailed explanation of covenants of the rated instruments/facilities: NA

Annexure-4: Complexity level of the various instruments rated

Sr. No. Name of the Instrument Complexity Level

1 Debentures-Non-convertible debentures Simple

Annexure-5: Lender details

To view the lender-wise details of bank facilities please click here

Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to care@careedge.in for any
clarifications.

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CARE Ratings Limited
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CARE Ratings Limited
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